283 | Confession: I Have Some Credit Card Debt

I have a confession: I have some credit card debt.

Those of you who have been around for some time may not be surprised by this because I’ve been using debt strategically for years.

Due to some circumstances in my business, I haven’t paid this particular debt off as quickly as I’d like.

In this episode, I’m pulling back the curtain on the credit card debt I have and the plan to pay it off.

• • using debt strategically
  • where my credit card debt came from
  • when to use balance transfers and personal loans to pay off credit card debt
  • mistakes lawyers make with balance transfers and personal loans
  • how I’m using a 0% interest balance transfer
  • the importance of paying off a balance transfer before the promo period ends
  • having a plan to pay off your debt

• Need help with your finances? Schedule a consultation here

You’re listening to Personal Finance for Lawyers. I’m Rho Thomas, and as a busy wife, mom, and former Biglaw associate, I know all too well the tension between the culture of the legal profession and pretty much everything else you want to do in life. That’s why each week, I’m bringing you the information and tools you need to improve your money mindset and manage your money to create true wealth. Because ultimately, it’s not about the money. It’s about the freedom and flexibility the money affords.

Hey friend. Welcome back.

Today, we are talking about some credit card debt I have and the plan to pay it off.

I’ve told you before that I’m not afraid of debt. I don’t think that debt makes me a bad person. I don’t feel any shame about it. It just is.

And my husband and I have used debt strategically over the years for various things that we need. And in this instance, I’ve used debt strategically for my business, which is what this is.

So I invested in my business earlier this year, and due to some different circumstances throughout the year, I have not been able to pay that credit card off as quickly as I had planned to. And so I did my first balance transfer.

A balance transfer is a tool where there’s a 0% promo typically on a credit card. That new credit card company will pay off the balance of your old credit card, and then that balance is transferred to the new credit card at 0% interest for a set time period.

So mine is 0% for a year. And I have used this with a lot of my clients as they are climbing out of debt. Typically, it’s once they’ve gotten a handle on their finances.

So they’ve gotten a handle on their cash flow, they’re no longer overspending, and they have money available to pay down their debt. They’re doing that consistently. And then we’ll do something like a balance transfer, or sometimes we’ll also do a personal loan, where they are taking out a personal loan to pay off that credit card, and the personal loan is at a lower interest rate that allows those payments to go further.

The reason that I like to wait until people have that control over their finances or until they are consistently able to put money towards their debt is because a lot of lawyers get into trouble with these balance transfers and personal loans and things like that.

Because as I said, with those things, you’re able to pay off that credit card that you’re working on and sometimes people see that $0 balance on this credit card that has had a balance for so long, and they feel so relieved, and then they just forget about the fact that they just moved the balance, that there is this new credit card or this new loan that they’ve got to work on paying off.

And so people will not do that, and then they end up running that first credit card back up again because they didn’t change their spending habits or anything like that. And so now you’ve got that balance that you had originally, plus you’ve got the new balance from the new purchases and charges and things like that you’ve made. And so you end up with more debt.

So I like balance transfers and personal loans and things like that as a tool when you’re working on getting out of debt, but only after you’ve already changed your spending habits so that you won’t end up running that credit card back up again and end up back in the same place.

Turning to my specific debt, as I mentioned, I invested in my business earlier this year, and then I have not been able to pay that down as quickly as I had planned to. And I’m looking at the payments that I’m making and how much of the payment is going to interest, and I didn’t like that.

And so I was like, well, let me pull this tool out that I’ve used with my clients, and I can use it for myself.

So I did a balance transfer to a 0% interest credit card, and I get that 0% for a year, and so now the payments that I make will go directly to paying that balance down, and I’ll be able to pay it off more quickly.

The key thing that I want you to remember, and the reason that I wanted to talk about this experience, is… I want you to not be afraid of using a credit card, of having credit card debt, things like that. Like I don’t believe in, you just can never use a credit card ever again.

I think credit cards are a great strategic tool. I think that the 0% interest balance transfers are a great strategic tool. But I want you to always keep in mind that you need to have a plan.

So with my situation, I had already been putting money towards paying off that investment, it’s just that it’s just that the payments that I was making, a large portion of it was going to interest, and it wasn’t making as big a dent in paying down that investment as I would like.

So moving it to that 0% interest credit card, I’m able to take bigger chunks out of that balance, and I’m able to pay it off more quickly. But there’s a plan there. So I didn’t just move it to the 0% interest credit card and say, whew, all right, that’s paid off. I don’t have to worry about that anymore, and then just go about my life.

Now I’m going to look at the 0% interest credit card, and I’m going to make the plan for how to pay it off. One of the things that I considered is whether to just pay that balance over the course of the 12 months so I could lower the payment that I’ve been making and have more cash available and just pay that balance over the 12 months.

But I decided against that because I didn’t expect the things that have happened in my business that happened and while I’ve got the cash flow coming in, I would rather just go ahead and pay the balance off and not wait until I’m right at that 12-month mark.

That’s another mistake that I see people making where they’re working on paying off a balance transfer, like a 0% interest card, and that promotional interest rate is only available for a set period of time. And then once that time is up, the interest kicks in, and it applies to the entire balance.

So if you have one of those cards and you don’t pay it off by the time that promotional rate runs out, now you’re going to get hit with a bunch of interest, and you may as well have never had the 0% credit card in the 1st place.

So that’s why I decided not to lower the payment that I’m making and to just go ahead and keep at the pace that I’m at, so that I’ll pay it off well before the 12-month period. So that is something for you to keep in mind as well.

The key takeaways here are you can use a 0% balance transfer or a personal loan or something like that as a tool in your strategy of getting out of debt, but you’ve got to make a plan.

So make sure that when you do one of those things, if you do a balance transfer, if you take out a personal loan with a lower interest rate to pay off credit card debt, make sure that you also create a plan for how you’re going to attack the personal loan or that balance transfer. Don’t just forget about it.

The second thing is make sure that you’ve got a plan that will allow you to pay off that balance within any promotional period that you have because once that promotional period is up, now, you’re going to get hit with interest on that whole thing, and you don’t want that.

And the key in all of it is to make sure that you are managing your finances in such a way that you have that gap between your income and expenses that we always talk about, because that is how you’re able to make progress with paying off your debt in the 1st place.

So I was making progress with paying off the original credit card, but because of the interest, I wanted to do this 0% promo card so that I could make faster progress without the interest eating into what I was doing.

So make sure that you are managing your finances so that you’ve got that gap and you’ve got that money that can go towards paying down your debt. And then when you’re doing that, when you’re on top of that, you are consistently managing your cash flow the way that you want to, using a tool like a balance transfer or a personal loan is going to accelerate your progress.

Alright, so hopefully hearing about my experience is helpful for you as you’re going about your own experience.

If you need help, please feel free to reach out to me. You can schedule a call at rhothomas.com/call.

Alright, that is it for this week’s episode. Please take a second and share this episode with a friend or two who you think could use this information. That is how we grow the show, how we’re able to spread the information to as many lawyers as possible. And as always, I appreciate your support.

As we close out, friend, I pray that you take the information you learn here, apply it in your life, and open up to the realization that wealth is available to you.

As you do that consistently, week after week, you’ll continue to take steps to take back control of your time, build wealth, and live the life of freedom and choice you deserve.

Talk to you later.